Business Taxes Law Guide – Revision 2015

Sales And Use Tax Court Decisions

King v. State Board of Equalization . . . (1972)

Contract for Construction of Electrical Power Transmission Line Taxable as a "Construction Contract"

Taxpayer had been assessed tax on its labor charge in erecting and fastening electrical power transmission lines to towers furnished by the power authority and installed by the contractor, and on charges for conductors, insulators, and hardware supplied by taxpayer. The Board, relying on ad valorem property tax rulings, characterized the line as "tangible personal property," and thus regarded the labor as taxable "fabrication labor" under Revenue and Taxation Code Section 6006(b), which provides that "sale" includes the fabrication of tangible personal property for a consumer who furnishes the materials.

The court found the Board's reliance on the property tax provisions to be misplaced, since there was no relationship between the property tax and sales tax provisions. In affirming the trial court's decision that tax applied to the tangible components but did not apply to that portion of the contract price attributable to labor, the court held that the transaction in question did not have the statutory characteristics of a "sale" but was taxable as a "construction contract" under regulation 1521. Tax was thus inapplicable to the contractor's labor charges. The court also held that taxpayer's defense of limitations was untimely, since the defense was not raised in taxpayer's claim for refund filed with the Board. Further, the facts did not establish an estoppel against the Board with respect to the application of interest and penalties, since the Board consistently took the position that the transaction was taxable as a "sale." King v. State Board of Equalization (1972) 22 Cal.App.3d 1006.